State audit finds errors in major events fund

Infiniti Red Bull Racing driver Daniel Ricciardo, 3, makes his way past throngs of fans at the 2014 Formula 1 U.S. Grand Prix in Austin. The Grand Prix has received more than $86 million in local and state funding under the major events fund since 2012.

Photo: Michel Fortier /San Antonio Express-News

A state audit found errors in the distribution of public money under the Major Events Trust Fund, which likely caused officials to hand out millions more to event organizers and local governments than they should have.

The fund, which has distributed $206.6 million of state money since 2004, is intended to help Texas cities compete with other locales for big sporting events. It offers financial help for events based on the amount of revenue they will create through sales and use taxes, auto rental taxes, hotel taxes and alcoholic beverage taxes.

When calculating how much tax revenue an event would create, the state comptroller’s office sometimes included taxes it shouldn’t have, such as property taxes and federal excise taxes, according to a report issued by state auditor John Keel.

“Including tax types that are not statutorily permissible results in major events receiving significantly more funds than they should receive,” the audit says.

As part of the audit, comptroller’s office staff ran a demonstration of the computer program, IMPLAN, used to calculate the tax revenue created by some events. In the demonstration, the program produced a revenue amount that was 28 percent higher than it should have been because it included the extra taxes.

IMPLAN was used to estimate the tax revenue for several large events that altogether received tens of millions of dollars from the major events fund, including the 2013 NBA All Star Game and the U.S. Grand Prix from 2012 to 2014. That means the state likely handed out millions of dollars more than it should have.

The fund also has been used to woo events such as the Alamo Bowl and NCAA competitions to San Antonio. Lately, local officials have been using it as part of an effort to bring College Football Playoff championship games to the Alamodome.

The audit also criticized the state’s reliance on economic impact statements from organizing committees and local governments to calculate how much money an event will receive. Those groups “have an interest in maximizing the amount of funding approved for disbursement,” the audit said.

The audit also found fault with the way the comptroller’s office examined out-of-state attendance figures provided by organizers and local governments after events took place. If the figures are below what was estimated, the event receives a fraction of what was offered. The audit recommends putting in place stronger methods to confirm attendance figures.

The major events fund has been a source of controversy for years. Critics have said it provides localities and sports teams with more money than they need, paying for items such as Jumbotrons. In 2013, state lawmakers approved new restrictions and oversight on the major events fund and similar funds.

The major events fund is supposed to cover expenses “necessary and desirable” to conduct an event, but because of “vague language” in event contracts, it has been used for such things as cash prizes and plasma televisions, according to the audit. In September of last year, the comptroller’s office changed its rules to clarify which expenses can be covered.

Last year, an Express-News investigation discovered that an organizing committee never formally asked London-based Formula One Management Ltd. to choose Austin for its U.S. Grand Prix, which has received more than $86 million in local and state funding under the major events fund since 2012. The audit recommends making it a requirement to submit an application in writing to a site selection committee, such as a sports league, to bring an event to a local area.

“Several key aspects of the administration of the (major events fund), both before and after a major event occurs, should be strengthened to help ensure accountability,” the report says.

The audit also recommends taking into account the negative impact a major event can have on an economy, such as discouraging locals to go out and spend money in the city, when calculating economic impact.

The major events fund was transferred from the comptroller’s office to the governor’s office at the beginning of September. Deputy Comptroller Mike Reissig wrote a brief response to the audit, saying the comptroller’s office would help the governor’s office with the audit’s recommendations, if help is needed.

Richard Webner is the real estate reporter for the Express-News. He moved to the beat in spring 2016, after spending about a year covering retail, hotels, tourism and manufacturing. Before coming to San Antonio, he was a business reporter at the Florida Times-Union in Jacksonville, and he had internships at the Chicago Tribune and the Pittsburgh Post-Gazette, as well as the Express-News in summer 2013. He earned a graduate degree in journalism from the University of Missouri and an undergraduate degree in History from Northwestern University. He grew up in Columbus, Ohio but has had the good fortune to live all over the United States.